How does a 2-1 buydown work, and what does it cost?

How a temporary buydown works

With a temporary buydown, your interest rate is lower for the first year or two, then rises to the loan’s permanent rate. In a 2-1 buydown, the rate is 2 percentage points lower in year one and 1 point lower in year two. The difference in payments is paid up front, usually by the seller or builder, and held in an account that tops up your lower payments.

What it costs

The cost equals the payments it saves you: the gap between the full payment and the reduced payment, added up over the buydown years. On a $400,000 loan at 6.5%, a 2-1 buydown costs about $9,100. Your payment starts around $2,030 a month in year one and $2,270 in year two, before settling at about $2,530.

Buydown vs. price cut

The same $9,100 as a price cut would lower your payment by only about $58 a month, but for the life of the loan. A buydown gives much bigger relief early on, which helps if money is tight in the first years or you expect your income to rise. If rates fall and you refinance, unused buydown money usually goes toward your loan balance, so it isn’t lost.

Things to know

• You qualify at the full rate, not the reduced one.
• Seller-paid buydowns count toward the seller concession limit for your loan.
• A permanent buydown (paying points) lowers the rate for the whole loan instead.

Asking for a buydown in your offer

Ask for a seller credit “to be applied toward a 2-1 temporary buydown,” and confirm with your lender before you sign that they offer the buydown you want. New-construction builders often advertise buydowns as an incentive; compare the buydown’s value with a price cut or closing-cost credit they might offer instead.

Questions buyers ask